I’ve been accused — rightly, I might add — of being a geek. I also happen to be in real estate. You put the two together, plus a keen interest in using new social media tools like Twitter, and what do you get? The Twitter-MLS!

For a long time, MLS searches have been available via email. Recently, some real estate search providers — like our friends at Trulia and at Diverse Solutions — have enabled MLS searches via RSS feeds. (That’s actually the technology I use on the sidebar to provide the link searches.)

As the latest new big online thing, Twitter has attracted a massive cult following, and as a permission-based communication tool, it’s ideal for sending out news snippets such as new listings.

Here’s how it works:

1. Sign up for an account at Twitter if you haven’t done so already.
2. Head thither and “follow” my Twitter “Menlo Park MLS” account. Other towns in the Bay Area will follow shortly.
3. Sit back and enjoy the “tweets” that will come your way by cell phone, email, Twhirl, online (depending on how you configure Twitter). These “tweets” will be little news snippets about new homes to hit the market. Want more details? Click on the link in the tweet and you’ll see pictures, details, and much much more.

If you’re more of a FriendFeed type, I have the same offering available in FriendFeed room format. Find your way yonder, select your favorite city, and click “Join This Room.” And, as our British cousins would say, “Bob’s your uncle!”

FriendFeed room example for Burlingame:

Twitter example for Menlo Park:

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With surprisingly little fanfare, Redfin, that pesky little Seattle brokerage the real estate industry loves to hate, announced yesterday their “Redfin Select” program, which looks suspiciously more and more like … a traditional brokerage offering.

Redfin’s initial business model, which made great sense in the VC’s conference rooms, was to outsource a big chunk of the buying process to its clients in exchange for a big chunk of the buy-side commissions.  For better or for worse, however, that model has continued to run dab-smack into the middle of the reality of real estate:  the listing agent, though representing the seller, is not usually responsible for showing the property to every interested buyer.  That service is usually provided by the agent representing the buyer.  The problem?  In order to make offers on a property, Redfin’s clients have to actually, well, see it.  If they don’t manage to hustle there during an open house, then they’re SOL — unless a Realtor-magic-key-toting Redfin agent comes by to open it.  And just like that, poof! goes half the business model.

Fast forward to today.  If you’re a Redfin client and you want a regular set of property showings, just give up a portion of the commission that was coming due to you and have Redfin show you around, just like a traditional broker would do.  Instead of getting 66% of the commission back, you get 50% back.

Possible explanations come from two different fronts:

First is my “Innovator’s Dilemma” proposition:   Redfin as a classic disruptive company, will first figure out how to be profitable serving the lower end of the market, the price-conscious clients that traditional brokers don’t mind losing.  Then it will move upmarket, charge more, and offer more service — ie. become more like a traditional brokerage, but with fatter margins.

At first glance, Redfin’s move seems to fit this pattern.  However. by Redfin’s own admission, they’re not growing as quickly as they would like, their business model is not as scalable as they had hoped, and they certainly are too young of a company to have taken significant market share yet.

So perhaps the better explanation comes from Mike Simonsen over at Altos Research.  Mike suggests it’s a simple pragmatic response to the harsh realities of the market place and their VC backers:  they need to become a $100M company as quickly as possible, and doing it at $10000 rather than $5000 per transaction will bring that about more quickly.

Other commentary:

• The Bloodhound notes that the rules around home showing seem strict and, well, a bit school-marm-ish.
• Greg Tracy suggests Redfin is becoming what they hate: a traditional brokerage.
• Jon Washburn notes the progression leading to this model and wonders if Redfin may end up becoming simply a lean-and-mean traditional brokerage.

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Lost in the ongoing discussion about Redfin’s recent appearance on the Today Show is the blatant Redfin geek-baiting of their “Redfin Scientist” marketing push.

Many Realtors have looked at this document with it’s “No, duh!” recommendations (stay engaged, don’t overprice your property, do advertise it on the web) and thought, “I don’t need any ’scientist’ or ‘research paper’ to tell me that!  It’s just obvious!!!”

It may be obvious or it may not be obvious, but here’s the stroke of genius on Redfin’s part:  one of their core target demographics — Gen  X and Y geeks living in high-priced markets — tend to not take our assertions as fact until they see the underlying data-driven proof.

As a Gen X geek myself, I completely relate.  When the old-timers in the business say, “This doesn’t feel like a normal Fall market”, I don’t take it on faith.  I download a data set from the MLS, crunch some numbers, and come to my own conclusion.  Far more often than not, the old-timers’ intuition is spot on…but I’m not comfortable with their assertions until I see them backed up with data.

If I had a nickel for every time a Realtor told a prospective client at a listing appointment “Don’t overprice your home” but provided no hard data to back up that assertion, I’d have retired a long time ago.  Many folks are comfortable with assertions, but “geeks” (which I define as data-driven technology lovers) for the most part want the numbers.

Redfin recognizes this and gives it to them.

Traditional real estate advertising targets a geographic niche, typically a town or neighborhood.  One of Redfin’s primary niches — perhaps their largest one — is a demographic niche:  the geek market, or, more precisely, geeks in high-priced markets.  And guess what?  Seattle and the Bay Area, their two primary markets are not only expensive but are also full of geeks!  I have no inside information about their sales numbers, but I wouldn’t be a bit surprised if 25% of their Seattle business consists of Google and Microsoft employees.

The lesson in all this?  Know thy customer.  If you’re Redfin and your customer is a geek, give him the numbers.  State the obvious, state the not-so-obvious…but back it up with numbers.  Future studies I’d like to see coming out of Redfin’s scientists (or heck, maybe I’ll do them myself) include:

• Staging your home is a positive ROI investment.  Really?  Show me the numbers.  I suspect it’s true, but I’d love to see a study that compares the sales price of, say, $800K homes with and without staging.  Do the homeowners that invest $5,000 in staging really sell their home for at least $5000 more than the ones who don’t?
• Taking more and better pictures of your home makes your home sell quicker and for more money.  I’ve seen the numbers that prove a listing with more and better pictures gets a lot more online views, but do those views translate into more open house visitors and eventually into a higher price?
• Selling your home with a full-service broker will net you more than going with a discount broker.  Again, a common assertion.  Show me the data!  If, for instance, the average full-service commission in an area is 5.5% and the average discount commission in an area is 3.5%, are full-service brokers typically able to get a 2% or greater premium on the sales price?

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No one can doubt Redfin’s Glenn Kelman is a master of publicity; witness his latest publicity coup: getting on the Today Show to talk real estate with Meredith Vieira. The re.net was abuzz, from Joel Burslem’s neutral coverage to the Bloodhound’s  semi-excoriating review to a withering ActiveRain critique on the “obviousness” of what Kelman said.

The joke, I would say, is on us. To anybody who’s been in the business for any length of time, Kelman’s advice — don’t overprice the home, do advertise on Craigslist — is painfully second nature.

But here’s the point: Kelman is a master genius at generating publicity around knowledge that we take for granted. So it’s obvious to you as a professional Realtor that overpricing a home is the kiss of death? But you’ve never created any marketing buzz around that! You instinctively know to push for a price of $749,000 rather than $751,000? Glenn Kelman just beat you at getting the phone to ring by spinning that message in the right way!

A further irony: this is really nothing more than a repetition of the same mistake we’ve made for decades in this business: assuming that our intellectual assets have greatest value when we hide them from the public and use it as bait to get them to call.  For many years, we hoarded MLS information in book form and made the public come to us to get it.  When the Internet came along, we figured we could do the same thing.  Oops!  Companies like HomeGain figured out a way to use online MLS information to get their phones to ring, and forwarded the leads to us…for a fee.

Then we thought, “Ok, we’ll let the public have information about active listings, but as soon as a listing sells, we’ll hide it again.  Hee hee…this will force people to call us for that kind of information!”  Oops!  This now-you-see-it-now-you-don’t mentality opened up an opportunity for some very smart and deep-pocketed folks from Seattle to start a web site which, among other things, enabled the public to find out what homes sold for.  Zillow realized what we didn’t:  there is great marketing value in letting the world know what you know, rather than trying to hide it.  (See this article I wrote about a year ago on the gold buried in our MLS’s.)

Come on folks, when are we going to learn our lesson?   In the Internet age, you don’t win clients by giving only a sneak preview of your knowledge and data and then crossing your fingers that they will come to you in pursuit of the rest of it.  The game now is transparency — I know, an overused term perhaps, but true nonetheless.  You develop a followership by demonstrating your value, and you do that partly by showing what you know.

What “obvious” thing do you know that may have marketing value for your business?

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I know, confusing headline.  But that’s what you get when you combine a show with Today in the title, and an event that’s happening one day in the future.

I’ve been sworn to secrecy by Redfin’s PR maven Cynthia Pang until 9:01pm PST tonight (under pain of death, I’m told — though Redfin’s own Matt Goyer apparently broke the embargo early.)  It will, of course, be a live event, so we’ll see how Glenn Kelman holds up under the klieg lights.  (Fortunately for him, Kris Berg is not, as far as I know, conducting the interview.)

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As I previously reported, Foxton’s the now-defunct east coast discount shop, is, well, defunct.  They recently fired most of their staff and declared bankruptcy.  What to do with the thousands of listings they had, however?

RIS Media reports that a tranche of some 1400 of them have been taken over by another broker, Fillmore, for about $110,000, which puts a value of $78.57 per discount listing.  With most agents spending hundreds or thousands of dollars in acquisition costs per listing, this sounds like an absolute bargain.

However…these being discount listings, the math might be different.  For a full service listing netting, say, 2.5% on the listing side, I’d be willing to pay significantly more than $78.57.  I believe Foxton’s, however, only charged a few thousand dollars per listing, out of which they had to cover employee costs (their agents were largely salaried, not commissioned), office costs, and the nifty little cars each agent got.  This model only works well in volume, when the market is spinning along comfortably.  With the market slowdown, however, things didn’t go so well.  As Foxton’s VP of Sales Mark Horvat delicately puts it:

We regret to inform you that, due to the recent down turn in the residential real estate market, Foxtons has decided to conduct an orderly liquidation of its business.

If Foxton’s couldn’t make it happen with their fees, how will Fillmore manage it?  Only two ways to do so profitable that I can see:

1. Charge more.  This is a non-starter, however.  The listing agreement that Foxton’s clients signed specified a certain listing fee, and Fillmore would be contractually bound.  Mark Horvat again:With the exception of the identity of the listing broker, all of the terms of your listing agreement with Foxtons would remain the same.
2. Lower costs.  Fillmore doesn’t seem to be going down this road either.  It appears they’ll be launching new satellite offices, hiring some 40 top-performing Foxton’s agents, buying their agents laptops, renting them cars, and putting them through their “Fillmore University” training program.

The math just doesn’t make sense to me.  If Foxton’s couldn’t swing it financially, how is this not financial suicide for Fillmore to take over the listings at the same fee, with the same cost structure?  What am I missing?

Foxton’s did not, apparently, have any Boston coverage.  If it did, I find myself wondering if Redfin might have tried to purchase any of those listings.

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Tipped off by another insightful Greg Swann piece (Greg — do you ever sleep?) I just read through Glenn Kelman’s fascinating soul-baring finances-revealing post over on Guy Kawasaki’s blog. As a serial entrepreneur — and quite a successful one at that — Glenn has certainly done more than his fair share of financial modeling, and his post is rich in advice for the prospective entrepreneur.

What is particularly fascinating is how Redfin’s financial modeling is thoroughly and utterly unlike that of a traditional broker. That makes sense, of course, since Redfin is, well, not a traditional broker. In particular, unlike traditional brokers, Redfin makes its money through the act of – wait for it — brokerage — that is, representing buyers and sellers of homes.

Traditional brokerages — Coldwell Banker, Prudential, ReMax, Keller Williams, Alain Pinel — on the other hand, most emphatically do not make money through brokerage activities — they leave that work to their agent work force, usually a collection of independent contractors. Traditional brokerages, you see, make their money through landlording.
They provide agents with office space, training, mentoring, branding, open house opportunities, telephone lines, etc. and then charge these agents twofold: first, a portion of their commissions (starting at 50% or more for new agents, going down to perhaps 5% or 10% for the top agents, averaging perhaps around 25%) and secondly, a rather long laundry list of fees, including tech fees, desk fees, legal fees, and a myriad of others.

Much of what remains in the agent’s pocket after the broker’s share is divvied up among countless vendors, including the local MLS, newspapers, cell phone carriers, web site vendors, and Lexus dealers.

Here’s a picture of the money trail:

…and here’s one of them new-fangled Sketchcasts…

Further commentary from others:

• Ardell summarizes her take on the article: Sounds like the practical people are the ones asking for money, and the impractical ones are the people giving the money.
• Joel wonders if the downturn in the market will do a Foxton’s to Redfin.

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Exciting times indeed in real estate! Market woes, mortgage troubles, bankruptcies, lay-offs…

Adding to the bad news is that Foxtons, the UK-based discount real estate brokerage, is laying off 350 employees from its New York and New Jersey operations. Some have predicted that this down market will weed out the non-traditional players [see comments section], Redfin being the company most commonly named. Michael Wurzer, meanwhile, says his long-time prediction of declining agent numbers may finally be coming true.

Inman reports that Move.com, the 800-pound gorilla of the business, is being sued by Active Rain, the utterly addictive 50,000-strong online real estate community. It has been an open secret in the real estate world that Move.com was positively salivating over Active Rain’s strong viral network of real estate professionals, and that negotiations had broken off. Now the full story has come out. Active Rain’s side of the story is, essentially, that Move.com took a page out of Microsoft’s playbook of the 1990’s, before they got smacked down by some unfavorable court rulings: court a smaller company, find out everything you can about its business model, technology, and market…then break off the talks at the end and do it yourself. Move.com, meanwhile, says that nothing Active Rain showed them during negotiations was even remotely earth-shattering.

ActiveRain’s official statement to the ActiveRain community: (login required)

Members of the ActiveRain Real Estate Community,

Recently Inman News reported on a lawsuit brought by ActiveRain against Move, Inc. Of course reports of this nature raise a lot of questions, and it has always been a part of our culture to openly discuss things with our community. We would like to be able to discuss these issues more with you. However, since this is a matter of pending litigation, our counsel advises us not to comment.

Should you be interested in the positions of ActiveRain and Move, Inc. in this lawsuit, attached are ActiveRain’s Complaint and Move, Inc.’s Answer filed with the Court in this proceeding.

We thank you for your continued support and understanding.

ActiveRain members, by and large, appear to be supportive of the company, suspicious of Move.com’s intentions, but perhaps a bit concerned that ActiveRain would have considered consorting with Move.com in the first place. The delightful and ever-opinionated Laurie Manny says: [boldface mine]

Imitation is the most sincere form of flattery.

How did Realtor.com/Move.com expect to become successful without us, the membership? Realtor.com has been repelling Realtors with their high prices and lack of performance for well over a year now. Free blogs - for how long? They do not rank up on the engines now on their own, they need AR to do that. What are they offering the membership that we do not already have? Ok, so maybe in about 6 months we would all acheive similar rankings to what we already have?

I think you guys at AR are fantastic, but I have to ask. Why the hell did you jump into bed with such losers to start with? If they were going to pay it somebody else would have as well.

Live and learn.

ActiveRain complaint

Move.com response

Other commentary on the same story:

• Joel Burslem at FOREM speculates that some Active Rainers may not be happy to find out they`were about to consumed by the borg, and he goes on to remind readers that the content you contribute to online communities like Active Rain doesn’t necessarily belong to you.
• Douglas Heddings suggests that full-service agents will be partying late into the night at this news.
• Stefan Swanepoel weighs in.
• Brian Brady thinks they’ll settle for $8M to keep this thing from going to court and having a California jury hear stories about cigar-chomping good ol’ boys fleecing a trio of hard-working American entrepreneurs.
• The Libertarian Jesuit Bloodhound says Active Rain doesn’t have a case.  Move.com, a big, slow, and stoopid Realtor-teat-sucking monster if ever there was one, actually made a wise decision for once, and decided they’d be overpaying for what was essentially a commodity product.

Pictures courtesy of thisfabtrek.com, foxtons.com, gorillahub.com, move.com, and activerain.com

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Redfin is the company everybody in the traditional real estate industry loves to hate. “They’ll go bankrupt just like all discount firms do when the market turns bad.” “Can you believe how they force listing agents to do all the work?” “Their agents don’t have a clue about the market!”

Deride Redfin if you want, be skeptical of its business model, take potshots at Glenn Kelman all you want…but whatever you do, don’t dismiss Redfin out of hand, at least not before hearing what this man has to say.

Clayton Christensen is a professor at Harvard Business School who has become well-known for his research into how technology disrupts industries. His theory, put forth in his books The Innovator’s Dilemma and The Innovator’s Solution posits that new entrants into an industry often take advantage of a disruptive technology to enter the marketplace at the lower end, catering to the low-margin customers that the established players aren’t that interested in serving. He gives examples in many industries, including financial services (Charles Schwab came into the brokerage business catering for the budget stock investor), steel manufacturing (mini-mill technology), and hard drives.

While Redfin is by no means the first entrant in the discount brokerage space, it is arguably the one that has generated the most attention. Redfin’s technology — its slick real estate search site, its semi-automated offer-writing system — may not appear too disruptive, but its technology and associated business model have struck a chord with a growing market segment that is disenchanted with the traditional real estate industry, and, not coincidentally, the industry has returned the favor. That market segment — initially diehard do-it-yourself’ers who just don’t see the value of schlepping around town with a real estate agent — is one the traditional industry isn’t too fond of catering for, on the assumption that if we let clients out on their own, they might discover it’s not that difficult to plan an afternoon’s home-shopping around an open house schedule, and then they might question our overall value. For the most part, the traditionalists aren’t too sad to see this type of client defect to Redfin. “They think they know everything, they don’t see the value of a Realtor, and then they want part of my commission!”

What is common about the customers of these new lower-end entrants in any industry is that they’re not interested in a gold-plated product or service — they want something “good enough” and cheap.

If the new entrant succeeds, it starts to take market share from the incumbents, who finally wake up — often too late — and discover that the “cheap, undesirable” part of the market is both larger and more lucrative than they previously thought.

Even more interesting is that as the new entrant grows, its clients’ needs often change over time — to the point where the new entrant now also provides more of a “traditional” experience. Think back to Charles Schwab: its early customers were drawn in by the prospect of significantly less expensive stock brokerage services. The Charles Schwab of today still provides that, but also provides a higher-touch, higher-cost service, akin to that of the Merrill Lynches.

Might this happen to Redfin? Nobody knows…but if they are successful in what they’re doing, don’t be surprised if five years from now Redfin offers not only a discount real estate experience, but also a full-service one.

How can established companies lessen the risk of a low-cost competitor coming in at the lower end, then working its up the value chain? One of Christensen’s suggestions is as audacious as it is — for most companies — implausible: spin off a separate lower-cost business unit to learn about the lower end of the market.

So, how about a “Coldwell Banker Lite” offering? Want a full-service, full-fee experience? You can use the Coldwell Banker you’ve always known. Thinking of using a discount service, but unsure about Redfin’s brand? Then you can go to the Coldwell Banker Lite offering. Either way, Coldwell Banker can serve you. From the company’s point of view, they’ve retained a client; sure, it’s a low-margin client — for now. But five years down the road, the customer’s good experience may lead him back to the Coldwell Banker name, and perhaps this time using the full-service, high-margin option.

Skeptical of Redfin? That’s fine — but just don’t write them off until you look at the uncanny resemblances between our industry today and the industries Christensen describes in his books.

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Fresh from a successful round of meetings with VC’s over on Sand Hill Road, Redfin just announced closing a successful fund-raising round of $12M, led by none other than Draper Fisher Jurvetson.

The coverage of this event has been predictable: Techcruch claims that Redfin’s goal is to “completely remove real estate agents and brokers from at least half of a home sale” (in which case they would immediately go bankrupt, since in most states you can only claim compensation for representing somebody in a real estate transaction if you’re a licensed agent.) The Bloodhound notes that this brings investors’ stake in the company to around $40,000 per transaction, while the indefatigable Kris Berg compares Glenn Kelman to those infamous Internet scammers (”419′ers” being the technical term) promising untold riches.

While both Kris and I have met Glenn Kelman, we clearly have different opinions about him. Say what you will about Redfin’s disruptions of our staid industry, but I’m thinking their business model may just have fins — er, legs — and that we castigate them to our own potential future peril. Besides, even if he tries, Glenn Kelman doesn’t have nearly the right accent to be a true 419′er. I, on the other hand…(ask me at Inman.)

But we digress. From an inside source at Redfin, I hear the team is busy divvying up the spoils as we speak.

1. Sick of their current digs, they’re about to make an offer — using Redfin direct — on this swank place.
2. Media & PR person Cynthia Pang’s is changing her title to “Lady Pang, Public Relations Mogul” and buying these guys.
3. Each Redfin’er is getting one of these. Oh, wait a minute — Redfin’s site doesn’t work with Safari. Scrap that idea.
4. Glenn is pursuing his love of Mustangs by getting one of these.
5. Newsflash: Offer on 1) above was rejected “out of hand” so now they’re hiring none other than the Grand Dame of Seattle real estate to represent them. Rumor has it she’s agreed to refund Redfin $25 of her commission.
6. They’re making 1.3M DVD copies of this show and have asked these guys for their mailing list.

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